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The Great Music Industry Power Shift

The long drawn out demise of recorded music revenue is well documented, as is the story of artists, labels and managers all trying to make sense of a world in which music sales can no longer be counted upon. But the contraction of recorded revenue has occurred at the exact same time that the live music sector has undergone a renaissance. The net effect, when coupled with publishing revenue holding its own and the growth of albeit modest, merchandise revenue, is that the global music industry has largely held its own, contracting by just 3% between 2000 and 2013 (see figure). Compare and contrast with the 41% decline in (retail) recorded music revenue over the same period. Indeed it is the 60% growth in live revenue that has done most to offset the impact of declining music sales.

Perhaps most significantly of all, the contrasting fortunes of the music industry’s two main revenue streams is that the share of total revenues accounted for by recorded income has dropped from 60% in 2000 to just 36% in 2013. The balance of power has firmly shifted away from labels to the live value chain. Yet it is not as clear a picture as might first appear:

Recorded music is still the main way people interact with music: Whether it be on the radio, YouTube, Spotify, an iTunes or a CD, the vast majority of consumers spend the vast majority of their music consumption time with the recorded product not the live product. In fact just 15% of people regularly go to gigs. And even for these consumers live is, in terms of total time spent, just a small fraction of their music consumption. So labels are faced with paradox of making less money from artists yet those same artists still needing the recording in order to drive live and merch income. This is why we ended up with 360 deals.

Much of the market growth didn’t make it down to artists: The live music value chain is an incredibly complex one with multiple stakeholders taking their share (ticketing, secondary ticketing, venues, booking agents, promoters, tax, expenses etc.). The share of live revenue that artists make from live has declined every year since 2000. The impact on the total market is that total artist income (i.e. from all revenue sources) has declined every year too since 2009.

The Next Music Industry

It is probably fair to say that we are approximately half way through a huge period of transition for the music industry. The realignment of revenue is merely a precursor to the new business models, products and career paths that will emerge to capitalize on the new world order. It is in this next phase that the real ‘fun’ will start. Expect every traditional element of the industry to be challenged to its core, expect dots to be joined and old models to be broken. But be in no doubt that what we will end up with will be an industry set up for success in the digital era.

NOTE: the figures quoted in this post are taken from a forthcoming MIDiA report: The Superstar Artist Economy: Artist Income and the Top 1%. The report is a follow up to the previous MIDiA report ‘The Death of the Long Tail’

It would be misleading to publish these results without adjusting for inflation, or including adjusted figures for comparison. Certainly it would be wrong to state the conclusion as a decline of only 3% if in fact these are unadjusted figures. Since 2000 cumulative inflation in the UK is nearly 50%, and in the USA nearly 40%. Taking 40% as a rough global average, a decline of ‘only’ 3% in unadjusted figures would be equivalent to a decline of about 43% in real terms. Which is it?

It is only normal for the shit to happen as people have access to cheaper everything. We have cheaper musical instruments, recording equipment and on the whole, people can easily sell their own music online. With this in mind, it is normal for the giants to have lower percentage of the revenues!

Being a rap music producer when it comes making money in the game I get my per beat quote up front then my points on the back end. Also I’ve learned that I can make more money selling my beats for television commercial and movies than I ever did making a beat for a rap artist. There’s more than one way to monetize in the industry other than the standard way.

It all goes back to when the music industry was initially ruined by the betrayal of the technology industry.

When Napster hit the scene back in the late 1990’s, a sense of entitlement was in the air. I remember clearly how people felt it was their right to do whatever they wanted with digital intellectual property. “After all we paid for it” and “all those musicians are making all that money” blah blah blah. A sense of entitlement.

I was a technician involved in Project Madison by IBM in 1998. Project Madison was The Big Seven music labels last ditch attempt to rescue itself from “illegal” copying of music.It was Sony, Time-Warner, EMI, Jimmy Buffet, and several others all trying to do their best to stop the bleeding.The project was too little too late. IBM squandered a huge amount of money and produced nothing.

At that time there was a huge move in the tech industry to make the hardware for CD and digital file technologies neutral, in the sense that *anything* could be duplicated and recorded with a computer.

The music industry, not technically savvy, betrayed the artists by not lobbying hard enough to make the technology respect the intellectual property, i.e. build in proper encryption and copy-proofing or copy protection. Previous attempts in times past with diskette copy protection schemes was the reasoning.

The movie industry was not as clueless, and fixed the problem both technologically and legally. The down side to the entire entertainment industry is that they are all still way behind in their sense of public trends with technology.

For example, while Netflix, Amazon and other streaming services are “nice”, none of them offers really that great of a selection of movies, and don’t update their online streaming content often enough, such that pirate sites still abound as a better alternative. If you look at the top 25 movies for any year, barely any of them will be available on Netflix or Amazon Prime. Maybe on Amazon at an exorbitant rental fee. Neither provides any real depth like a true online library of film would.
But even the movie industry is not immune. If they offered their movies at a better price, they’d see less illegal downloads. Make it up in volume. Instead of selling movies at over 10 dollars, sell a current feature for in home at $1, like you did in theaters a long time ago.

So, the music industry’s cluelessness is its own failure. That cluelessness has resulted in a failure to protect the intellectual property of the artists.

People who copy music with no regard for intellectual property do not realize the costs associated with producing real music, and this mass-ignorance is also part of the problem. Get under the hood of a city like Nashville and see how many awesome musicians there are, not just in country, but jazz and blues and every other genre who cannot get paid like the days before digital, because the industry is broke.

Back when you couldn’t duplicate vinyl records, re: 45 RPMs and LPs, the intellectual property was protected by the medium. You broke the record, or it was scratched, you had to buy another. A music collection of albums included not just the music, but beautiful cover art.

Also, because the property was protected, it meant the industry was making money, and could afford to pay musicians. That’s why 40’s/50’s/60’s/70’s music has its staying power – they could afford top notch session musicians, they had real money to work with.

Now, it’s a shadow of the glory days of music. It will take mass education by a clueless music industry to get the protection back onto their intellectual property.

Great Article, At the moment for artists, the music industry seems to be similar to that of higher education. It doesn’t matter how much money you spend(and get in debt for), or how much work you put in, there is no guarantee you’ll get anything out of it in the end.